MMM Holdings, Inc. v. Reich

21 Cal.App.5th 167

230 Cal.Rptr.3d 198

MMM HOLDINGS, INC., et al., Plaintiffs and Appellants,

v.Marc REICH, Defendant and Respondent.

G053739

Court of Appeal, Fourth District, Division 3, California.

Filed March 12, 2018

Ervin Cohen & Jessup, Michael C. Lieb, Patrick A. Fraioli, and Leemore L. Kushner, Beverly Hills, for Plaintiffs and Appellants.

Spach, Capaldi & Waggaman, Madison S. Spach, Jr., Newport Beach, and Thomas E. Walling for Defendant and Respondent.

OPINION

IKOLA, J.

Plaintiffs, MMM Holdings, Inc. (MMM), and MSO of Puerto Rico, Inc. (MSO), sued defendant Marc Reich, the attorney who represented their adversary in a whistleblower qui tam action filed against plaintiffs in the United States District Court.¹ Alleging causes of action for claim and delivery, conversion, civil theft, unjust enrichment, and unfair competition, plaintiffs contend Reich received, wrongfully possessed, and refused to turn over, some 26,000 electronically stored documents his client, Jose "Josh" Valdez, took with him in 2010 when he was terminated by MSO for his allegedly "vocal opposition to what he perceived as Plaintiffs' fraudulent practices."

Reich filed a special motion to strike the complaint under Code of Civil Procedure section 425.16, the anti-SLAPP (strategic lawsuit against public participation) statute.² The court granted the motion, concluding the claims asserted by plaintiffs against Reich involved Reich's petitioning activity protected by the anti-SLAPP statute, and that plaintiffs had not shown, and could not show, a probability they would prevail on any of their claims. We conclude the court did not err and affirm the order.

FACTS

The following facts are taken from the complaint, declarations, and evidence submitted in connection with the special motion to strike.³ ( § 425.16, subd. (b)(2) ["In making its determination, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based."].)

The Earlier Lawsuits

MMM and its subsidiary, MSO, are Puerto Rico corporations. MMM Healthcare, LLC and PMC Medicare Choice, LLC (collectively, the plans) are wholly owned subsidiaries of MMM that operate Medicare Advantage plans in Puerto Rico through a broad network of more than 5,000 contracted providers. MSO manages the physician network under which the plans provide services to their members, and in that regard, acts as an agent for the plans. The plans are health maintenance organizations that contract with the Centers for Medicare and Medicaid Services.⁴

Valdez served as president of MSO from April 2010 until his termination in December 2010. According to Reich, Valdez contends he was terminated in retaliation for his vocal opposition to plaintiffs' fraudulent practices. Plaintiffs contend Valdez was terminated because he was incompetent and failed to perform his job duties.

While employed by MSO, Valdez possessed a company laptop and two personal laptops that contained electronic data including emails and attachments he had sent or received in the course of his employment; he also had a personal computer tablet that contained notes he had taken during the course of his employment (collectively the computers). When he was terminated, Valdez kept the computers and the electronic files and notes they contained.

Reich has represented Valdez and his family since approximately 1997. After he was terminated, Valdez provided the computers to Reich's law firm. According to Reich, he and his firm segregated all the files potentially subject to the attorney-client privilege. Reich's handling and later dissemination of the documents is the subject of alleged wrongdoing in this case.

Following Valdez's termination in December 2010, plaintiffs sought return of all company documents and property. MSO contends a clause in Valdez's employment agreement required Valdez to immediately deliver the notes and all other documents, information, and data to MSO upon his termination of employment. Reich contends the clause is unenforceable because the documents contain evidence of fraud against the United States government.

Within five months of Valdez's termination, Valdez's attorneys, including Reich, filed under seal a qui tam action in the United States District Court for the Central District of California entitled United States of America ex rel. Jose R. Valdez v. Aveta, Inc., et al. , case No. CV11-03343 GAF(JCx) (the qui tam action).⁵ Reich declared he and his co-counsel used unprivileged documents found in the electronic files from the computers to prepare the pleadings in the qui tam action.

The qui tam action alleges plaintiffs overcharged Medicare by more than $1 billion dollars between 2007 and 2010 by manipulating Medicare Part C. The operative first amended complaint alleges a violation of the False Claims Act ( 31 U.S.C., § 3729 et seq. ) and Valdez's retaliatory discharge. The gist of the qui tam action is that plaintiffs knowingly submitted inaccurate, incomplete, and misleading data to the government in order to increase payments made to the plans and that plaintiffs retaliated against Valdez for his speaking out about plaintiffs' overbilling practices.

It appears not much occurred between April 2011 and January 2014. Plaintiffs apparently stopped demanding documents and were unaware of the qui tam action. In January 2014, the United States declined to intervene in the qui tam action. The complaint was unsealed and served. Plaintiffs first became aware of the qui tam action at that time.

With the qui tam action now underway, in August 2014 plaintiffs' counsel sent a letter to Valdez's attorney, Thomas H. Bienert, Jr., (with a copy to Reich) inquiring as to whether Valdez or his counsel had any company documents. In September 2014, Bienert responded yes, and in October 2014, another attorney from Reich's firm sent plaintiffs an external hard drive that contained over 26,000 emails and other documents of plaintiffs and/or their affiliates.⁶

Plaintiffs allege that in or about December 2014, MMM first learned that in October 2014 Reich converted for his own use and then e-mailed a digital copy of some of the documents to another attorney, Freddie Perez of Puerto Rico. Plaintiffs' attorney, Christopher Joyce, declared this revelation occurred during the deposition of plaintiffs' CEO Richard Shinto in an action filed by plaintiffs and their affiliates against a terminated medical provider seeking recoupment of improper payments (the Marini action). Perez represented the Marini defendants, who filed counterclaims against plaintiffs herein alleging improper contract termination and inappropriate claim denials. During the deposition, Perez asked Shinto to review four emails provided to him by Reich. Plaintiffs' attorney, Patrick A. Fraioli, declared the four emails are confidential and proprietary.

Plaintiffs allege Reich intentionally sought out Perez for his own purposes and without direction from Valdez (whom plaintiffs allege was incapacitated) in violation of Reich's "ethical duties and California law" and that he provided Perez with copies of plaintiffs' documents having no connection or relation to the qui tam action for Perez's potential use in unrelated litigation. Reich declared the documents are related to both the qui tam action and the Marini action "because both actions involve [p]laintiffs' retaliation against providers for providing expensive, but necessary, care and the failure to pay non-network providers for emergency services." Thus, Reich contends he provided documents to Perez to help prove the common issue of plaintiffs' failure to pay non-plan providers for emergency services provided to plaintiffs' insureds.

Aside from Perez, plaintiffs also allege Reich provided documents to "numerous other individuals throughout the United States" including attorneys not associated with Valdez or the qui tam action. Based on evidence submitted in connection with the anti-SLAPP motion, this allegation appears to relate in part to a 2012 class arbitration filed by medical health service providers alleging plaintiffs and their affiliates underpaid medical specialists under the terms of their contracts in 2010 (the Vazquez arbitration). Attorney Alan Plutzik represented the claimants. According to Attorney Joyce, all the claims in the Vazquez arbitration relate to alleged breach of provider contracts, not fraud.⁷

Plaintiffs' evidence includes a so-called "Dissemination Chart" identifying certain of plaintiffs' documents that Reich admits he provided to Plutzik in 2011, 2013, and 2014.⁸ Plaintiffs' attorneys, Joyce and Paul Klausner, declare the "CMS Fee Schedule Rationale," one of the documents provided to Plutzik, is protected by the attorney-client privilege and work product doctrine. Reich disputes this characterization because the document discusses economic benefits and drawbacks of various options in making a business decision and does not contain legal advice or reference any lawyer's name.⁹

Joyce also declared another document that lists the names, specialties, and 2010 bonus payments of specialist medical providers was also disseminated to Plutzik, and he states this document contains highly confidential and proprietary information akin to a customer list. Klausner also declared another document, an October 27, 2010 e-mail from Shinto to Valdez was privileged. Reich denied any documents he provided Plutzik were privileged.

Reich justified providing documents to Plutzik by declaring Plutzik was one of the attorneys who considered representing Valdez in the qui tam action. Further, Reich declared Plutzik was attempting to prove in the Vazquez arbitration that plaintiffs underpaid fee-for-service medical providers, and that was one of the facts Valdez was trying to prove in the qui tam action. Reich reasoned the documents could assist Plutzik in his proof, which would collaterally estop plaintiffs from denying the fact in the qui tam action, and therefore...